Sensex needs to break atop 17,500 in order to create a bull market.

MARKET NOTES: Sensex needs to break atop 17,500 in order to create a bull market.

Sensex: Defying all predictions of doom and gloom the Sensex staged an unlikely rally from 15,130 level reaching for the 17,500 area that marks the upper channel of its main downward sloping channel. What distinguished this rally from previous such bear rallies is mid-cap participation. Rallies in mid-cap stocks pull in investor participation and stretch out a rally in extent and time. Having said that, mid-caps too do stage sharp bear rallies in the course of their correction. Hence investors should be cautious. A break out of the Sensex atop 17,500 would warrant a revision in my view that we are in a normal bear rally. Until that happens convincingly, participation should be limited to blue chips only and small stocks should be avoided.

$-Index: As expected in the last post, the $ turned down from its major overhead resistance at 82 and is currently trading at 80.4. However, in terms of time, a retest of 82 level cannot be ruled out. Therefore, the 80 level signifies the lower end of the short term trading channel, which is sloping upwards. I don’t expect the $ to rally beyond 82 but a significant correction down below 80 is not on the cards until the middle of February. That also ties in with the notion that the Euro-$ is still not entirely out of the woods yet. Would cut $ shorts to zero at 80 levels. I am mildly bullish on the $.

Euro-$: As expected in the last post, the Euro came close to breaching the 1.26 mark against the $ but stopped well above it. The Euro has a major overhead resistance at 1.32 that likely to be breached in the coming week. As per charts, the Euro has no business being below 1.32 at this point. So expect a fairly sharp rally in the Euro in the ensuing weeks. Not a currency to short even if ECB is effectively well into QE3.

Gold: Gold acted as per expectations testing its overhead resistance at $1670. It remains overwhelmingly bearish on charts and may have signaled a new down trend in Friday’s trade. It is not yet ready to collapse though. Gold could aim for the lower end of its support at $1560 before staging any significant rally. For now, Gold is likely to be range bound within these two levels with a downward bias. The rally we just saw has been clearly exhausted.

HG Copper: Copper has a major overhead resistance in the 3.9 to 4.0 area that it needs to cross before a rally can take hold. Copper could test the area in the weeks ahead but the prospects look bleak beyond that point. The metal’s correlation to the Chinese equity markets could prove short lived. Not bullish on Copper but would turn bearish close to 4.0 levels.

NYMEX Crude: Crude continues to consolidate around the $100 mark but the underlying bias is upward. An attempt at $115 in the near future looks a distinct possibility. Not a time to short the commodity.

Shanghai Composite: The Chinese index closed the weekend at the 2300 level, which as noted earlier, is its first major overhead resistance and something of an inflection point. The coming week will throw up the markets reaction to events in that area. A breach of 2300 will set the stage for a rally to 2500. It isn’t possible to discern further moves from the 2500 area. Remain cautiously bullish on China for now.

S&P 500: As expected in the last post the US equity markets continued to rally with participation by mid-cap stocks. The next major resistance for the index lies in the 1350/1370 area that appears difficult to breach. In terms of time the S&P 500 has plenty of time to take a shy at that level. A breach of 1370 would warrant a complete redrawing of charts and wave counts. Until that happens, the present rally should be seen as a bear rally albeit with small stock participation. This is not a market to short at this point.

Russel 2000: Russel 2000 is currently poised at 780. It would take a miracle of sorts for the index to convincingly pierce through the 800 level. When it does so, the previous top at 850 could well be in sight. However, that seems highly unlikely. In a sense the Russel 2000 is a rogue index, pretty badly behaved at times. So anything is possible. I would take all profits and be neutral on this index now but definitely at 800. Anything beyond that is sheer luck. An unruly plunge on the index at anytime before May this year cannot be ruled out. The index is toppish. You have been warned.

NB: These notes are just personal musings on the world market trends as a sort of reminder to me on what I thought of them at a particular point in time. They are not predictions and none should rely on them for any investment decisions.